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Examining the outlook for London as a commercial legal hub post-Brexit

Question

How will Brexit impact London’s status as a centre for international commercial dispute resolution?

Answer

London has long been a favoured centre for global commercial litigation. Two-thirds of cases fought in London’s Commercial Court are now brought by non-UK litigants. Several reasons have been attributed to this, including the English courts’ record of impartiality, a well-regarded commercial judiciary, the commercial certainty attributed to English contract law, the ease of the use of the English language and the large pool of legal talent available in London.

London also has a leading status as a centre for international arbitration. Participants in the 2015 International Arbitration Survey by Queen Mary University and White & Case named London the most preferred and widely used seat for arbitration, with 47% naming London their most preferred seat (an increase of over by 50% since 2010). London is preeminent in the arbitration market for largely the same reasons its court system is favoured by litigating parties all over the world. For example, the White & Case survey found English law was chosen by 40% of companies for contracts and New York state law by 17%.

Law firms have benefitted from London’s status as a centre for international commercial dispute resolution, but the uncertainties that still surround Brexit almost one and a half years after the referendum might pose a risk to this status. Most of the factors contributing to London’s status as a litigation hub identified above are unlikely to be affected by Brexit. However, it is important to note that the current legal framework for cross-border disputes is largely governed by EU regulations. Uncertainty over the future of those regulations and what will follow may impact the decision-making process of international litigants who have to decide whether to bring proceedings in the United Kingdom, unless these concerns can be adequately addressed by the government.

Jurisdiction and enforcement of judgments

The current regime governing jurisdiction, recognition and enforcement of judgments (for proceedings commenced on or after 10 January 2015) is the Brussels I Recast Regulation 1215/2012. Where proceedings concern EFTA Member States (ie, Iceland, Norway and Switzerland) and the EC, the Lugano II Convention applies. The Lugano II Convention was entered into in order to align with the Brussels I Regulation, but has not been updated to align with the Brussels I Recast Regulation. Broadly speaking, the effect of the Recast Regulation is that judgments of courts in England and Wales are enforceable throughout the European Union, and English jurisdiction agreements are enforceable throughout the European Union. Unless the Recast Regulation is replaced with another similar set of laws post-Brexit, then the English courts will no longer be courts of an EU member state and the Recast Regulations will cease to apply to English jurisdiction clauses and judgments. These issues would fall to domestic law. In the case of jurisdiction, this could lead to a resurgence of parallel proceedings, as a court in an EU member state would no longer be obliged to stay proceedings until the English court decided whether it had jurisdiction. With regards to enforcement of judgments, this would result in a slower, more costly and more uncertain process as enforcement would require the domestic rules of each individual member state in which enforcement was sought to be investigated. This could undermine London’s position as a litigation hub.

A number of solutions have been proposed, and they should not be viewed in isolation. Firstly, the United Kingdom could endeavour to replicate the Recast Regulation as closely as possible via a separate agreement with the European Union, similar to the jurisdiction agreement between the European Community and Denmark ([2005] OJ L/299/62). This would require a provision that the United Kingdom would pay due account to decisions of the European Court of Justice in interpreting provisions which are equivalent to the Recast Regulation. Alternatively, the United Kingdom could sign and ratify the Lugano II Convention alongside Norway, Switzerland, Iceland and the EC. This might not be ideal as the Lugano II Convention has not been updated to reflect the Recast Regulation. Lastly, the United Kingdom could sign and ratify the 2005 Hague Convention on Choice of Court Agreements. Currently, the UK is a member by virtue of its membership in the European Union (as the European union is a signatory), however it would need to become a member in its own right post-Brexit. The Convention ensures the effectiveness of exclusive jurisdiction agreements (and not non-exclusive jurisdiction agreements), and provides for the recognition and enforcement of judgments which emanate from such exclusive jurisdiction agreements.

Choice of laws

The choice of law in contractual and tortious disputes is governed by the Rome I Regulation 593/2008 and the Rome II Regulation 864/2007 respectively. The Rome I and II Regulations apply across the European Union regardless of whether the chosen law is the law of an EU member state (ie, no reciprocity is required). Therefore, EU member states would continue to apply English law to contractual and tortious disputes where English law has been chosen by the parties, even post-Brexit. However, English courts will not be similarly bound. Therefore, it has been suggested that the Rome I and II Regulations are re-enacted at the domestic level in order to ensure continuity of these regimes.

Arbitration

London as a seat for international commercial arbitration is unlikely to be affected post-Brexit. Arbitration is excluded from the scope of the Recast Regulation, and applicable law is resolved by Section 46(1) of the Arbitration Act, in addition to institutional rules, such as Article 21 of the rules of the London Court of International Arbitration. A more restricted immigration regime post-Brexit may present issues of access to the market but this is unlikely to outweigh the factors in favour of London as an arbitration centre.

Factors outside of Brexit

The tendency to make it all about Brexit should be avoided. A study published in November 2016 found that the proportion of litigants bringing cases to the English courts from Europe has been declining over the past four years, whereas the proportion of litigants from states of the former Soviet Union has been steadily rising, with Kazakh and Russian litigants representing the highest number of cases outside of the United Kingdom. Issues surrounding cross-border dispute resolution post-Brexit may be of less importance to such litigants as the cases may not involve Europe.

At the same time, London is facing competition from overseas jurisdictions which offer proceedings in the English language and/or under English law (or laws similar to English law), such as Hong Kong and Singapore. Factors such as the prohibitive costs of litigating and arbitrating in London contribute to the loss of Asian work to jurisdictions like Singapore. In addition, some have voiced concerns that United Kingdom sanctions against Russia could lead Russian litigants to look to such jurisdictions. Given this competition, uncertainty regarding the future legislative framework for cross-border disputes can only play badly for London.

It is important that, given all of this, that the government does not lose sight of proposed reforms for continued modernisation and improvement of the court system. Lord Thomas identified the state of court buildings and the quality of IT in court proceedings as reasons why London is chosen for dispute resolution, and this must continue if London is to remain a firm candidate for international commercial litigation and arbitration post-Brexit. Furthermore, the government should ensure that it clarifies and addresses the potentially considerable gap that could arise in the context of cross-border disputes as a result of Brexit, and it should do so sooner rather than later.

Alexa Romanelli is an associate in the litigation and arbitration team at White & Case.

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